The IRS Statue of Limitations Date is Usually Wrong

The IRS has 10 years to collect on a tax debt. This time period starts on the date of assessment, that is the date they post it to their database. It would seem to be a simple manner to figure out when the 10 years is up, but this is taxes after all. The complexity comes from events that can put a hold on the statute days from running.

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Statute of Limitations

These holds are the result of events happening that prevent the IRS from taking collection actions such as seizing a tax debtor’s bank account. This is only fair since it is conceivable that people would take advantage of the IRS’s processes to constantly initiate requests for a payment plan with the sole intention of running the clock on the IRS.

What are the events that will prevent the IRS from taking collection actions?

  • Filing bankruptcy is a big one. The entire time that the bankruptcy estate is open plus the following 6 months is added to the Statute of Limitations date.
  • Requesting a payment plan is another. The number of days that the IRS is considering whether to accept or reject is added to the 10-year date. If they decide to reject, an additional 30 days is added.
  • Similarly, the days that an Offer-in-Compromise is under consideration places a hold Statute of Limitations from running.

Now we come to the problem.

The IRS is very poor in updating its database when an Offer-in-Compromise or Payment Plan request is either accepted or rejected. Instead of seeing statute of limitations dates calculated as maybe a 9-month extension, you find them to be years long. Whether this is by design or just typical bureaucracy inefficiency is hard to say with certainty. My guess is that they are aware that maybe half the dates are wrong, but this error works to their benefit and as result is not a high priority to fix.

Bottom line, if your strategy is to wait out the Statute of Limitations, you had better plan on doing some work to prove what that date should be.

Author: Jim Payne

Jim Payne, a Florida Certified Public Accountant (CPA) since 1976, offers candid insights on getting square with the IRS — with the least pain, and at the lowest cost — with (or without) the help of a tax representative. Mr. Payne is a former IRS agent and expert in business profitability, IRS audits, IRS payroll tax, and IRS non-filer issues. As a Tax Representative, his goal is clear: " I will speak on your behalf to all IRS agents, so you never have to, and I'll guide you in executing a strategy to resolve your IRS problem so you can get back to enjoying life."

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